Soul Patts break-up doomed to fail: Ron Brierley

Ron Brierley also attempted, unsuccessfully, to break up the cross shareholding thirteen years ago when he was chairman of Guiness Peat Group.
Photo: Nic Walker

by
Stephen Shore

Ron Brierley
has predicted the latest attempt to break up the cross shareholding in
Washington H Soul Pattinson
and
Brickworks
will fail in the same way as his efforts did as chairman of Guinness Peat Group 13 years ago.

But Sir Ron said claims the deal would unlock $1 billion in value are “just not true".

“The bad news for Mark is he’ll get absolutely nowhere," Sir Ron told The Australian Financial Review. “The good news is he’s made a good investment.

“The board of Soul Pattinson hasn’t the slightest intention of making any change to the cross shareholding, and from their point of view, why would they? [But] when they [Mr Carnegie and Perpetual)] eventually sell their stake, they should do quite well."

Soul Patts owns 45 per cent of Brickworks, which is in turn a 43 per cent shareholder in Soul Patts. The structure was put in place by the Millner family in 1969 to protect both companies from takeover attempts from British bank Slater Walker. It is the last major cross shareholding of its kind in the Australian sharemarket.

Good corporate governance

Mr Carnegie and Mr Williams, who is the head of equities at Perpetual, have argued the structure violates the principles of good corporate governance and has allowed the Millner family to exert control of both companies with minimal shareholdings.

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The pair have a complex plan to split the companies which would include blocking the Millner family, Soul Patts and Brickworks from voting against the proposal.

Mr Carnegie has enlisted leading commercial lawyer Robert Mangioni to argue the major shareholders should be prevented from voting their stakes.

But sources said Allan Myers QC had examined the situation two years ago and found it would be extremely difficult to stop the major shareholders from voting.

Sir Ron, formerly the chairman of GPG, tried to break up the cross holding in April 2000 with a takeover bid for Brickworks.

“The cross holdings is absolutely wrong in principle but in a reality, they’ve done sufficiently well over the past 12 years, that it’s not a priority,"he said.

“You’ve got to put everything in perspective. If the company stumbled, the cross shareholding would probably come back into focus."

Healthy return

Over the past 15 years, Soul Patts has returned 14.7 per cent a year, compared with the All Ordinaries Index’s 8.6 per cent return.

“The real point is this: dismantling the cross holding would certainly alter the voting power, but it doesn’t make the slightest difference to value," Sir Brierley said.

“The value is already there, the assets are there – it would just alter the incidence of value so that shareholders of brickworks would have a little more of their own bricks and a little less of Soul Patts investment portfolio. The actual net assets remain exactly the same. This talk of releasing $1 billion out of thin air is just not true."

When asked how his present view fit with his break up attempt in 2000, Sir Brierley said: “The circumstances were a lot different 13 years ago. It’s as simple as that. What we were proposing would have returned value to shareholders, but it didn’t create additional value, so to that extent we’re on the same page as Mark. But this talk of $1 billion is very misleading."

A Brickworks shareholder who asked not to be named said the break-up attempt was a short-term play for quick profits and investors would be better off in the long term under the current structure.

Soul Patts and Brickworks chairman Robert Millner declined to comment.